which shows a labor supply curve for an individual.

which shows a labor supply curve for an individual.

Questions 27 – 29 are based on the following diagram, which shows a labor supply curve for an individual.

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Wage rate













H1 H3 H2 Hours of Work


27. If the wage rises from W1 to W2 we may conclude that:

a. the income effect is stronger than the substitution effect

b. the income effect and substitution effects are equal

c. the substitution effect is stronger than the income effect

d. labor supply is perfectly inelastic


28. If this person were now willing to supply only H1 hours of work at W3, we could conclude that:

a. labor supply increased (the curve shifted to the right)

b. labor supply decreased (the curve shifted to the left)

c. the person’s preferences must have changed

d. the substitution and income effects are now equal


29. Of the following, which one would most likely cause this person to supply H1 hours of work at W3 rather than the current H3 hours?

a. This person’s spouse receives a substantial income increase

b. A decrease in this person’s marginal valuation of leisure time

c. Congress abolishes an income maintenance program

d. This person’s spouse suffers a substantial cut in income

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